Life Insurance Options When Buying a House
26th October 2017
Are you looking to move into a new house? If so, there's every chance that you're deep in the process of buying and possibly selling a property right now. There is lots to consider such as your mortgage, property valuation, the work you want to carry out on the new house, as well as furnishings and packing.
When buying a new property you may also consider whether or not you require life insurance. The intention of a life insurance policy is to help your loved ones to cope financially in the event of your death, so that debts such as a mortgage and living expenses may not be as much of a burden to them during what could be an incredibly difficult time.
For many of us, our mortgage is likely to be our largest debt and represents an ongoing and typically high monthly outgoing that, without a life insurance policy, would continue should the worst happen. When it comes to life insurance there are typically two policy types to choose from. Level term life insurance provides a fixed amount of cover that stays the same throughout the policy term, whereas mortgage protection life insurance has a decreasing amount of cover that's usually aligned to the remaining outstanding debt on a repayment mortgage.
How Does Mortgage Protection Life Insurance Work?
Mortgage protection life insurance, also called 'decreasing term life insurance', is typically taken out to cover any outstanding balance on a standard repayment mortgage. Your debt will decrease with each repayment and so will your amount of life insurance cover, meaning that the total amount of the cover will decrease roughly in line with your mortgage.
You can choose the number of years, or term, that you wish the cover to be active for. In the case of mortgage protection life insurance, it is important that you choose the same term as the remaining mortgage. The premiums are usually paid monthly.
If a claim is made during the policy term, the policy will cease once the lump sum payment has been made to your loved ones. If you live to the end of the term, the policy will terminate and nothing will be paid out.
For homeowners looking to sell their property and purchase a new property, if you already have mortgage protection life insurance in place, the policy you have is unlikely to cover the debt of your new mortgage - unless the new mortgage is for the exact same amount and term in years as the existing one. In cases such as these it could be beneficial to assess what cover you have for the remainder of the policy you have, see how it marries up with your new mortgage repayment amounts and term, and take out a new policy to provide any additional cover you require.
It is possible to have more than one life insurance policy at a time. Unlike motor insurance or home insurance which could provide you with a saving by switching, life insurance doesn't always reward regular review as the policyholder's age and health are key factors in determining a monthly premium. Taking out some additional cover via a new, separate policy may therefore be worth thinking about.
What Does Mortgage Protection Insurance Cover?
The most important thing about this type of life insurance is that it can help your family to pay off the remainder of your mortgage should the unthinkable happen. You will find that mortgage protection life insurance does not provide your loved ones with any extra money for other expenses, such as education, loss of income, credit card debts and regular bills.
If you would like your family to be more comfortable financially in the event of your passing, you might want to consider Level Term Life Insurance instead or as well.
Do You Need Mortgage Protection Life Insurance?
Because this type of life insurance is to ensure that your mortgage will be paid off should anything happen to you, it may be suitable. But this will depend on your overall financial situation and whether your dependants would be able to cope without your income after the mortgage is paid off in full.
Beyond this, if your dependents are likely to struggle to cope without your income, level term life insurance may be worth considering, as you would have the ability to define a fixed cover amount higher than the remaining balance on your mortgage. It will not only give you the peace of mind of knowing that your family will be taken care of, but it will also help them to pay off any other outstanding debts, for your funeral or even to go towards university costs or a break from work to look after the kids.
If you are seeking to buy or sell a home, the ability to keep up with mortgage payments is a serious consideration for you and your family.
At Compare Cover, we specialise in comparing life insurance policies, which means that we can help you to compare the most appropriate policy for you and your loved ones. Get quotes today or read our handy guides to help you make an informed choice.